Indexation and Wage Change Settlement: Evidence from Spanish Manufacturing Firms

Sergi Jimenez-Martin

Oxford Bulletin of Economics and Statistics, 1998, vol. 60, issue 4, 449-84

Abstract: An endogenous switching model of ex ante wage changes under indexed and nonindexed settlements is estimated for the Spanish manufacturing sector using collective bargaining firm data for the 1984-91 period. The likelihood of indexing the settlement is higher for nationwide unions than for other union groups within the works council and increases with the expected level of inflation. For wage change equations, a common structure for indexed and nonindexed settlements is strongly rejected, showing a source of nominal rigidity. For indexed contracts, the expected ex ante total inflation coverage is nearly complete. It is also shown that workers pay a significant ex ante change premium (differential) to obtain a cost of living allowance clause. However, the realized contingent compensation exceeds such a premium for all industries. Finally, important spillover effects in wage setting and the decision to index the settlement have been detected. Copyright 1998 by Blackwell Publishing Ltd

Date: 1998
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